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The protracted housing slump that has devastated U.S. home prices now appears to have fully-enveloped the United Kingdom. Home prices in the United Kingdom in August fell at their fastest pace in two decades (pdf), U.K.-based mortgage lender Nationwide Building Society announced Thursday.

On a year-over-year basis, the average price of a U.K. home plummeted 10.5% to $301,500 or 164,654 British pounds in August, NBS said. Further, it was the first year-over-year double-digit decline in the U.K. since 1990.

London-based economist Mark Chandler told BloggingStocks Thursday the August U.K. housing data, "is just dreadful."

"Housing in the U.K. is becoming a bit of a 'magical mystery tour,' to borrow a phrase from The Beatles. For a month or so, we thought the declines in home prices had moderated. Apparently not," Chandler said. "Tighter lending requirements and real concern about the economy have sapped sales and it's really showing up in the price data."

A sluggish U.S. economy that grows at 3.3% in Q2? What's going on here?

The U.S. Commerce Department Thursday revised its Q2 GDP growth estimate to 3.3% from the previously-estimated 1.9%, but economist David H. Wang remains a skeptic regarding the appearance of an economic recovery.

"Don't write home or e-mail home that we have 'blue skies' ahead regarding the U.S economy because the skies remain uncertain and stormy looking. If you take away the export gains, the economy is still pretty weak," Wang said. "Also, one quarter does not a recovery make, and we'll get final data on Q2 GDP in September [September 26]."

Economists surveyed by Bloomberg News had expected the preliminary Q2 GDP statistic to total 2.7%. The U.S. economy grew at a 0.9% annualized pace in Q1 and contracted 0.2% in Q4 2007.

Q2 GDP data fleeting?

Wang said an improvement in exports and inventory accumulation strengthened GDP in Q2, but other factors suggest "it will be difficult, if not impossible to match that GDP growth rate in Q3 and Q4."

Toyota (NYSE: TM) has already said that 2008 will be a bad year. Now it has revised down its sales numbers for 2009. The cut is about 7% and takes the company's estimate to 9.7 million vehicle sales worldwide.

The news may be bad for Toyota, but the company has a good balance sheet and has maintained a low cost base for years. Europe and North America is where the Japanese company said it is sustaining the most damage. According to The Wall Street Journal, the firm is "bracing for a long slowdown as robust sales to developing markets are failing to offset huge losses in the crumbling U.S. market."

For General Motors (NYSE: GM) and Ford (NYSE: F) the news could not be worse. Both rely on the U.S. market for the lion's share of their sales. Both are counting on some recovery in 2009 to allow them to stop the bleeding out of cash that threatens their abilities to remain independent and solvent.

The two U.S. car companies were going to go to the capital markets to raise money. Whether debt or equity investors would give them money becomes more problematic as each month of poor sales goes into the record book.

The government is talking about a $50 billion bail-out for U.S. car companies. That may be the only capital they can get.

Douglas A. McIntyre is an editor at 247wallst.com.

There is an old axiom among lobbyists inside Washington, D.C.'s Beltway that goes: "Don't just do something, stand there!"

It's a policy wonk truism arguing that when uncertainty abounds, sometimes the best action is no action. And, one could argue, today's potential home buyers and sellers would be wise to heed the Beltway axiom.

A case of the Case-Shiller jitters

Economist Peter Dawson was hoping for Case-Shiller house price statistics in July that were easier on the eye. Dawson was disappointed: the Case-Shiller Index of 20 major metropolitan areas plunged 15.9% from July 2007 (pdf). Prices in the 10-city index plummeted a record 17.0% from July 2007.

"The July Case-Shiller data is about as bad as it gets. It shows a housing sector where prices remain in free-fall in just about every market, save a few, such as Charlotte, North Carolina and Dallas," Dawson said. "The housing bottom has not occurred and it's not near."

So given the above, what's the best stance regarding housing? For sellers, Dawson said if one has to sell for a job relocation, a sale invariably has to occur. But for those who have a three-year or longer sales horizon, postponing a sale may net a better price, providing the U.S economy recovers in 2009, he said.

For buyers, Dawson said "time is on the buyer's side" in most markets. "At this stage, lease or rent through at least June 2009," Dawson said. "In most major markets, prices are likely to be lower by next spring than they are today."

There are lines of reasoning, and then there are lines of reasoning.

European Central Bank board member Axel Weber said Wednesday there's no plan for interest rate cuts and policy makers may, in fact, have to raise rates as the economy accelerates out its slump, Bloomberg News reported. He added that "monetary policy is where it should be" and that "discussion about declining rates in Europe is premature."

Weber's comments occur after Eurostat reported that Europe's economy contracted 0.2% in the second quarter (pdf), amid signs of slowing in business investment and consumer spending, and sagging business confidence.

London-based economist Mark Chandler told BloggingStocks Wednesday that data he's reviewed indicate Europe's economy will continue to slow in Q3, which is why he's somewhat taken aback by Weber's comments.

"Weber's comments are a bit troubling. I mean, what data is he looking at? The comments will create a bit of a row [dispute] in the U.K. because our economy is not going to contribute to the recovery he sees, not at this stage," Chandler said.

From the end of March to the end of June, problem banks, as they are defined by the FDIC, rose from 90 to 117. These are banks with a high percentage of "non-current" loans.

The trouble is that the agency may not have enough money to cover the possible upcoming bank closings. So the FDIC said it "might have to borrow money from the Treasury Department to see it through an expected wave of bank failures," according to The Wall Street Journal.

At least two implication arise from this. The most obvious is that the credit crisis is spreading. More banks are having trouble with mortgage, business and commercial real estate loans. Given the spreading effects of the recession, that is not odd.

The other is the extent to which the taxpayer will be hit because of lax bank management. Money from the Treasury is eventually money from every man, woman and child in the country. But who cares? After bailouts of banks and brokerages and possible help for car companies, what is a few more billion?

Douglas A. McIntyre is an editor at 247wallst.com.

The Federal Open Market Committee (FOMC) released the minutes of its recent meeting on August 5. The event itself was a bit of an anti-climax because of the comments by Fed Chairman Ben Bernanke at the recent Wyoming summit.

Everyone knew that although members of the Fed are quite concerned about inflation, they are even more concerned about the deteriorating economic situation. This was clearly indicated in comments made at the Jackson Hole meeting. In addition, as I mentioned in my earlier analysis, the decisions by Fed Governors Plosser and Stern to vote to leave rates unchanged instead of dissenting indicates the gravity of the economic and monetary problems facing the United States. This was almost a complete reversal of the recent hawkish comments by both individuals.

The FOMC minutes actually give us insight into the thinking of the Fed. The Fed is very concerned about the fragile nature of the economy. It clearly believes that a rise in interest rates prematurely could damage the already battered credit situation.

However, the Fed is concerned about the inflation situation. It is particularly concerned that inflation could become embedded in expectations. This phenomenon is much more difficult to control once it begins.

It believes that the weak economic situation, combined with the recent decline in oil prices, may help to resolve this dilemma in the coming months. It may require a rise in interest rates if this does not occur.

Today's housing news on new home sales in July sounds eerily similar to the post I wrote yesterday about July existing home sales. In both cases, we are given a quick headline that sounds like good news, but once you dig into the details a little deeper you realize that the news is just not as pretty as it first sounds.

Let's first take a look at the positive headline: New home sales rise in July. Great, this is exactly the sort of news that the market needs to hear. After all, weakness in the housing market has been a major catalyst to the current economic slowdown, so any good news is like a breath of fresh air. During July the market saw a jump of 2.4%. Not too shabby.

But what does this really mean?

Big Lots (NYSE: BIG - option chain) shares are diving today despite reporting an 11% increase in second-quarter profit. The company posted earnings of 32 cents per share on sales of $1.1 billion, while analysts expected 27 cents per share on revenue of $1.1 billion. However, it warned that same store sales may not grow too much in the 3rd and 4th quarters. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on BIG.

This morning, BIG opened at $32.56. So far today the stock has hit a low of $30.21 and a high of $32.60. As of 12:45, BIG is trading at $31.69, down $1.37 (-4.1%). The chart for BIG looks neutral and S&P gives BIG a neutral 3 STARS (out of 5) hold ranking.

For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $35 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in 4 weeks as long as BIG is below $35 at September expiration. Big Lots would have to rise by more than 11% before we would start to lose money. Learn more about this type of trade here.

The dollar's rally resumed Tuesday, but for reasons that may give stock investors cause for concern, at least short-term.

The U.S. economy didn't propel the dollar higher -- the economy is in its worst condition in at least a decade. Nor did the prospect of rising interest rates strengthen the dollar -- the U.S. Federal Reserve has taken a pause in its rate-cut cycle, but may have to cut rates again this fall, if the U.S. economy weakens further.

The catalyst for the dollar's renewed rally? Concern that Europe's economy will fall into a recession, compelling the European Central Bank to cut interest rates, which would make the dollar more-attractive.

Traders increased their positions in the dollar Tuesday after Germany's most-widely followed index of business confidence, the Ifo institute's business climate index, fell to a three-year low of 94.8 in August from 97.5 in July, Bloomberg News reported Tuesday.

On the heels of the above report, the dollar strengthened 1.5 cents versus the euro to $1.4593, and 1.8 cents versus the British pound to $1.8352. The dollar also rose about one-half yen to 109.79 versus Japan's yen.

Currency trader Andrew Resnick, a dollar skeptic due to the dollar's many false breakouts to the upside, told BloggingStocks Tuesday he'll become a dollar bull if the rally holds through the U.S. Labor Day holiday period. Resncik added that he's presently flat, or has no open currency trading positions.

China Petroleum (NYSE: SNP) has already announced that its profits were down 71% in the first half. Now PetroChina (NYSE: PTR) is getting ready to report a drop in its profits.

The culprit is China's energy policy, which is hurting investors in the Chinese oil industry. According to the AP, "While other global oil giants are reporting record profits, Chinese government price controls prevent PetroChina and other domestic refiners from passing on higher costs for crude oil to consumers." It is an excellent reason for investors to avoid these stocks.

The central government control of oil profits is a fine example of why China should not have taken many of its large companies private. China needs to keep gas and diesel prices down to control inflation and offer cheap fuel to maintain transportation costs of exports at low levels.

With oil trading around $120 a barrel, the oil refiners in China could actually swing to losses in the second half. China is driving investors out of its most important corporations. PetroChina already trades near a 52-week low. That is likely to get worse.

Douglas A. McIntyre is an editor at 247wallst.com.

LDK Solar Co. (NYSE: LDK) American Depository Shares added 9.3% in today's trading. Only two weeks ago, on August 11, LDK reported second quarter results that beat any and all expectations. The shares then jumped from around $33.50 to about $40. Today, LDK shares closed at $50.06, the highest since December.

Two weeks ago, LDK raised its quarterly and 2008 forecast. Today, the Chinese maker of silicon wafers said 2009 deliveries may double. Sales next year will climb to $2.8 billion to $3 billion, the company said. Analysts estimated 2009 revenue of $2.42 billion, according to Bloomberg. LDK also announced that the company's wafer plant reached the milestone of 1.0 GW annualized capacity. For 2009, LDK predicts safer shipments between 1.45 GW to 1.55 GW.

Investors generally are pleased LDK is trying to control its raw material costs by building polysilicon plants. Yet, analyst consensus has been Hold with the average target price currently below the share price. With the recent announcements and current momentum, could we be in for a wave of upgrades, or at least estimate raising?

Something else to point out is the growing short interest. It now stands at 16.44 million, and it would take 11.2 days of average daily volume to cover it. If this goes on, shorts might get spooked.

Many factors in the market now, including soaring oil prices and global warming concerns, have boosted the solar stocks. LDK Solar has regained its favored status recently in this hot sector. Sometimes, that's all that's needed.

Two organizations, one projection: a forecast of 86.9 million barrels of oil per day consumed in 2009.

The International Energy Agency and OPEC arrived at the same projection, suggesting that, in economist Peter Dawson's interpretation that "2009 is going to be a year of a slowdown in oil consumption growth, which is significant."

Moreover, Dawson is quick to highlight what's important in the above: slowing oil consumption growth in emerging markets. Oil consumption in the United States has been falling for more than two years -- it's projected to drop 3.1% in 2008 and another 2.3% in 2009. It's oil consumption in the developing world, primarily China and India, that really moves prices, Dawson said. Oil Monday closed up 52 cents to $115.11 per barrel.

'A small victory, that we'll take'

Right now it appears, for the first time in more than five years, consumption growth (not to be confused with a consumption decline) will slow, he said.

"It's a small victory, that we'll take, regarding the oil markets," Dawson said. "For the first time in a while we'll see some demand relief internationally, and that has to help lower oil prices."

It's been said that old habits die hard.

And one habit likely to change is European Central Bank President Jean-Claude Trichet's penchant for delaying interest rate cuts until the last possible moment, so says economist Richard Felson.

"In this case, Trichet will be joining the Fed's rate cut party this fall," Felson told BloggingStocks. "In fact, if economic conditions continue to worsen in Europe, they may even precede the Fed with a rate cut." The ECB next meets to discuss rates on September 4; the Fed, on September 15.

The Fed, as investors / readers are aware, has paused in its rate cut cycle, after decreasing interest rates by 325 basis points, to 2% from 5.25%, in an effort to jump-start a U.S. economy dragged down by its worst housing slump in a generation. Meanwhile, the ECB has remained in restrictive monetary policy mode - - first increasing its refinance rate by a quarter-point to 4.25%, in mid-2008, then taking a stand-pat stance, citing inflation pressures.

In the current housing market, it has been hard to find any sort of silver lining, but we do see a little positive news today, as existing home sales in July jumped more than expected, mainly due to lower home prices.

During July, sales of existing homes rose by 3.1%. This was well above the 1.6% that Wall Street was hoping to see, but analysts caution against assuming that this is a sign that the market has finally bottomed out. Despite beating Wall Street estimates, we still have to consider the fact that home sales were over 13% lower than the same period a year ago.

While we can view the July sales figures as promising, we must also take a minute to look at home inventories, and here the picture is not so rosy. Here we see that the number of unsold single family homes is running at all time highs. Currently the market is trying to deal with a total of 4.67 million unsold homes. This is the highest level that we have seen since 1968 when the National Association of Realtors started monitoring the data.